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[TRIP NOTES] Amidst economic uncertainty, China’s global champions shine

Joel on August 19, 2015 - 7:39 am in Insights

Baidu

I recently wrapped up a two-week China trip sponsored by the China-United States Exchange Foundation, a Hong Kong-based nonprofit that aims to improve Americans’ understanding of China. My group traveled across four provinces to participate in nearly twenty meetings with Chinese executives, government officials and policy experts. While I previously lived in China for many years and continue to regularly travel there for business, this was a particularly eye-opening experience for two reasons.

First, my fellow travel companions were all American business journalists with varying levels of China exposure but all skilled in the art of the interview. Their ability to delicately draw out answers to difficult questions from even the most reticent of audiences helped surface insights that I personally may have missed. (Disclosure: Not all meetings were ‘on the record’ so this post does not reference all of the companies we met with.)

The second reason why this trip was unique was its timing around major market events, namely the Chinese stock market plunge and subsequent surprise devaluation of the yuan last week. I typically end my trips to China filled with contagious “economic optimism.” However, these recent financial events released an air of uncertainty that wove its way into every interaction we had—from official sit-downs with high-ranking officials at China’s Ministry of Foreign Affairs to casual conversations with cab drivers whose friends had lost money gambling in the stock market.

Despite the cautious economic backdrop, the trip did reaffirm my view about a major bright spot in the Chinese economy: the internationalization of Chinese companies. As I wrote about in my book China Goes West: Everything You Need to Know About Chinese Companies Going Global, China’s slowing economy, rising wages, industrial overcapacity and fierce competition are leading many Chinese executives to look outside the borders of the Middle Kingdom to jumpstart their next stage of growth. Emerging markets, advanced economies like the United States as well as frontier markets each present distinct opportunities for Chinese companies seeking to go global.

Expansion into Emerging Markets

In Beijing, I met with the Chinese internet search giant Baidu and smartphone maker Xiaomi. Both firms are focused on expanding into emerging markets to diversify outside of the hyper-competitive domestic technology and internet services space. Surprisingly, rather than focus on markets with shared language and cultural norms in Southeast Asia, both firms have prioritized Brazil as a target market for international expansion. Chinese President Xi Jinping and Brazilian President Dilma Rousseff even attended the launch of Baidu’s Portuguese search engine in July of 2014. For Xiaomi, Brazilian-born head of international and former Google executive Hugo Barra helped lead the charge where the smartphone firm not only sells directly to Brazilian consumers, but also manufactures locally through an operation with Foxconn. They’re hoping to develop a loyal following of Brazilian Xiaomi fans to put forward ideas that fuel the same continuous development approach that has led to its rapid expansion in China.

(Photo from Baidu’s headquarters in Beijing)

Expansion into the United States

Traveling to southern China, we met with “the Chinese Twitter,” Sina Weibo, at its Shanghai office. Weibo is a pervasive microblogging platform that recently opened an office in Mountain View, Calif. Rather than focus on mass-market American internet users, the firm aims to tap into the Chinese diaspora population to help spread adoption throughout North America. Further south in Hangzhou, executives from the automotive and new energy firm Wanxiang toured us around one of their largest auto battery production facilities.

Wanxiang opened its US headquarters in 1994, and has successfully acquired and integrated dozens of American firms over the last two decades. Most recently, since its purchase of electric vehicle producer Fisker Automotive, Wanxiang has increased Fisker’s U.S. staff from 30 to 300 employees, and it plans to go live with production of its first electric car to compete with Tesla in 2016.

(Photo with Wanxiang China General Manager at site visit)

Expansion into the Next Frontier

Xi’an, capital of the Shaanxi Province in central China, was the fourth city on our itinerary. When it comes to Chinese overseas investment, Xi’an is one of the main cities I’ll be watching over the next few years. It is a key urban center in the government’s ambitious “One Belt, One Road” (OBOR) plan. Xi’an marks the start of the Silk Road Economic Belt, the land route that focuses on enhancing economic engagement with Central Asia via land transportation and expanding influence onward to Europe. Frontier markets in Central Asia and the Middle East will benefit significantly from increased investment from China and its globalizing firms through the OBOR plan.

While in Xi’an, we met with the managing committee of the local high-tech development zone which aims to attract technology and biotechnology investment from foreign and Chinese firms alike. It already is home to the largest case of FDI in China—a $7 billion investment from Samsung, announced in 2014.

China’s next six months are likely to be uncharacteristically volatile economically, but the China growth story is far from over. Overall, I believe we’re moving away from what was once a narrative of booming growth across all aspects of the Chinese economy, to one that is defined by bright spots in specific areas. Chinese overseas investment and the internationalization of Chinese companies is one such area—and one that I won’t be pulling my eyes away from anytime soon.

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